“Healthy” physical store sales for US department store have exceeded expectations, prompting the retail giant to lift its business outlook for the year.
Macy’s posted an overall sales increase of 3.6 per cent increase for the quarter compared to the same period last year to $5.5 billion.
The company has raised its outlook for 2018 and is now expecting earnings to be between $3.75 and $3.95 a share, which is five per cent more than in 2017.
“Macy’s Inc.’s results for the first quarter of 2018 reflect continuing momentum in the business,” said Jeff Gennette, Macy’s, Inc. chairman and chief executive officer.
“We exceeded our expectations and saw strong performance across all three brands—Macy’s, Bloomingdale’s, and Bluemercury—as well as across all geographic regions and families of business. We are maintaining a healthy inventory position, which helped us deliver improved gross margin.”
Gennette said the winning formula for Macy’s, Inc. is a healthy brick and mortar business, robust e-commerce and a great mobile experience.
“While we have more work to do, the continuing improvement in our stores is encouraging and we once again achieved double-digit growth in the digital business,” he said.
“Our best customer is responding well to the improvements we’ve made to her experience in our stores, on .com and through the Macy’s app.”
Neil Saunders, managing director of GlobalData Retail, said Macy’s results showed a positive answer to the question on whether Macy’s could continue to deliver a recovery.
“The sales uplifts are particularly impressive, with a 3.9 per cent rise in comparables (4.2 per cent on an owned plus licensed basis) suggesting that Macy’s recovery is gaining momentum,” Saunders said. “That said, there are a few caveats that need to be addressed in order to provide a balanced view.”
Saunders said the first of these is the shift of the Friends and Family promotion to this period; last year this fell into the second quarter.
“This event is a big driver of sales and added 250 basis points to the comparable numbers. Stripping this out means that comparables rose by a respectable, but more modest, 1.7 per cent on an owned plus licensed basis,” he said.
“To be fair, this still represents progress from the 1.4 per cent increase Macy’s posted last quarter.”
The second consideration, according to Saunders, is the very weak prior year comparative when sales dropped by 5.2 per cent on a comparable basis and by 7.5 per cent on a total basis. While beating prior year sales was never guaranteed, with a little effort it has been relatively easy for Macy’s to engineer a better performance. This is especially so given that many underperforming stores which dragged down the same-store figures have been shut.
The third point relates to the general consumer economy which has been strong over the period. Tax cuts, bonuses and good tax refunds have all been a windfall to consumers who have responded by increasing spending.
“This rising tide has floated most retail boats, Macy’s among them,” he said. “This does not mean that Macy’s deserve no credit for its advancement, but it does mean that the process of re-engineering the business is being carried out against a favorable backdrop.”
The future danger, Saunders said, is that many of these dynamics will not hold as Macy’s moves through the fiscal year.
“Prior year numbers become tougher, the second quarter will lose an important event, and the consumer finances will likely tighten,” he said. “Taken in concert, this suggests that performance may well deteriorate.”
Saunders said the reason for their pessimism is that they believe Macy’s still has many fundamental issues that it needs to work through. These include sub-optimal ranges, a store experience that leaves a lot to be desired, and many locations where traffic is likely to decline over the medium term. On top of all of this, competition remains tough.
“There are many tempting raw ingredients in Macy’s strategy,” he said. “Our main concern is that these need to be mixed together into a more coherent dish. And this dish needs to be served up at more of Macy’s stores across the country. In short, progress is being made, but Macy’s needs to up the pace if it is to maintain momentum.”
